CRISIL Equities assigns IPO grade 4/5 to Hindustan Media Ventures Ltd

CRISIL Equities has assigned a CRISIL IPO grade of ‘4/5’ to the proposed initial public offer (IPO) of Hindustan Media Ventures Ltd (HMVL). This grade indicates that the fundamentals of the IPO are above average relative to other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals.

It may be noted that the grade is not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument’s future market price or its suitability for a particular investor. The IPO grade assigned to HMVL takes into account its presence in the Hindi newspaper industry, which is expected to grow faster than the overall newspaper industry. The higher growth in the Hindi newspaper industry is expected as a result of a rise in readership due to an improvement in literacy rate, increasing penetration and strong domestic consumption-driven growth in the rural markets, especially where HMVL is present.

HMVL’s newspaper Hindustan, the third largest Hindi newspaper with a readership of 9.9 million (Source: IRS 2010 Q1), is poised to benefit, given the strong growth potential. HMVL is the market leader in Bihar/ Jharkhand, the second largest Hindi daily in Delhi/ NCR and the third largest Hindi daily in UP/ Uttarakhand. The grade also takes into account HMVL’s strategy to deepen its presence in the existing markets through: (a) establishing new printing units in sub-pockets, and (b) increasing the printing capacities of its existing units.

Also, the company’s plans to consume higher proportion of domestic newsprint will help reduce overall newsprint cost and effectively manage raw material costs. The grade also factors in HMVL’s zero debt position post the IPO. The Hindi newspaper business was carved out from HT Media, the parent company, in December 2009. However, CRISIL Equities believes that synergies between the parent company and HMVL will continue to benefit HMVL in terms of access to national content, combined go-to-the-market options, raw material procurement, industry experience and corporate governance practices.

The grade has factored in the entry of DB Corp (the second largest Hindi daily) in Bihar/ Jharkhand expected in H2CY10, which will increase competition in the region. Also, in UP/ Uttarakhand, which is the largest market for Hindi newspapers, HMVL currently has a smaller presence compared to competitors like Dainik Jagran and Amar Ujala.

HMVL is a 98.85 per cent subsidiary of HT Media Ltd. HMVL was incorporated in 1918 under the name The Behar Journalist Ltd. The company primarily used to undertake printing and job work for Hindustan, the then Hindi newspaper of HT Media. In November 2008, the name of the company was changed to Hindustan Media Ventures Ltd. In November 2009, HMVL purchased the Hindi newspaper business from HT Media, comprising Hindi daily newspaper Hindustan, along with ‘Ravivasriya Hindustan’, ‘Nandan’ and ‘Kadambini’ magazines, and the Internet portal of the said publications, including all assets, liabilities and employees pertaining to the Hindi business. The purchase was done on a slump sale basis for a total consideration of Rs 1.4 billion. HMVL publishes four editions and 113 sub-editions of ‘Hindustan’. Over the years, HMVL has spread across Delhi/ NCR, Bihar/ Jharkhand, UP/ Uttarakhand and Chandigarh, with printing carried out at 16 facilities and an installed capacity of 0.78 million copies per hour.